Shortfall in National Insurance Contributions

oldandgrumpy

Last year, before I got pension, checked forecast. Quite clear..."for 7 years of the last 11, you haven't paid enough"
Listed years 1996/1997 to 2002/2003. Total required £2206.60.
Checked last month by phone, confirmed the figures.
Sent cheque... but £15.60 short due to a 2 year rule.
Sent cheque for £15.60.
Last Friday...£270 in account...back dated payments to start of pension last July.
Saturday...£750 cheque from HMRC. You paid too many years.
WHOOPEE.

seven-day-weekend

Good news OAG!!

khgibb

Okay, so I'm really really confused. I've been reading these posts and the offical pension website all evening and can't work out what to do. Please help!

I'm 27 and have been in full time employment for 5 years. I currently have letter telling me I have a shortfall for around £400 for one of the years I was at uni and I need to decide by the end of this tax year whether to pay or not.

As far as I understand it, I will not be able to claim any state pension until I'm 68, so I have plenty of time to build up the maximum 30 qualifying years. I plan to have a family so may well end up not working for some of this time, but I can claim credit years for any time I am not working and looking after children. So is there any point in paying a voluntary contribution if its likely I may end up with the 30 years anyway? Does the 30 years give the maximum basic state pension, or does it increase slightly with each year above that? And does any of this affect the second state pension at all? I'm not really clear how this fits with the basic state pension. Does the second state pension increase with qualifying years and/or the amount you pay per year? Or do you only get it if you don't qualify for the full basic state pension?

I have a separate stakeholder pension scheme that my company pays into, but my recent forecast is a bit depressing as the economic crisis has reduced my funds by 25% hopefully things will have sorted themselves by the time I need it tho!

So what I'm trying to work out is whether I will get any benefit at all from paying the voluntary contribution now. Once I know that I can decide if I think its worth it! Would really appreciate any advice/info, thanks!

jancee_2

Thirty years of either contributing through work or being credit with NI gets you the maximum basic state pension. No point paying voluntaries if you believe you will get to 30 - between ages 16 and 68 you can see there are 52 years in which to accrue your 30.

As to State Second Pension, it is an earnings related top up unrelated to the number of years worked or credited. You are accruing S2P while you are receiving Child Benefit and in future years if you go back to work you will accrue through contributing. There are plans in the pipeline to simplify the calculation so that for each year you contribute or are credited you would get £1.60 per year on top of basic state pension.

EdInvestor

jancee wrote: »

There are plans in the pipeline to simplify the calculation so that for each year you contribute or are credited you would get £1.60 per year on top of basic state pension.

I know they are planning to reduce the size of S2P but I don't think it's quite that bad.

Unless I am misinterpreting the way you have expressed it of course.

jancee_2

EdInvestor wrote: »

I know they are planning to reduce the size of S2P but I don't think it's quite that bad.

Unless I am misinterpreting the way you have expressed it of course.

I'm quoting from the Pension Advisory Service: May have misinterpreted though!

'
Restructure of S2P
The rules for the additional State Pension are changing. In the future it will become a simple, single rate, weekly top-up to the basic State Pension.

'For people earning £4,680 or more a year or getting credits for State Second Pension, it will start to build up at a flat rate of around £1.60 a week (both figures in 2008/2009 money) for each qualifying year. The exact date from which this will start has yet to be fixed, but it is expected to be between 2012 and 2015.
The current earnings-related element built up by people earning between £13,500 and £40,040 a year (in 2008/2009) will be gradually withdrawn, so that people will build up entitlement on a completely flat-rate basis by around 2030 or shortly afterwards. These changes to additional State Pension are intended to make it easier for you to understand how your State Pension is worked out and estimate how much you will receive.'
http://www.pensionsadvisoryservice.org.uk/pension_reforms/state_pensions/

khgibb

Thanks for the advice

So if I understand right, accruing more than 30 qualifying years makes no difference to the basic state pension, but does give you a slightly higher second state pension payout. This payout is at the moment related to your earnings, but there are plans to change this to a flat rate so it will only depend on the number of qualifying years you have.

I've requested a state pension forecast today, so hopefully when I get that I'll be able to work out if it would make much difference to me, although by the sounds of it I don't think it will. Which means more money for my savings this month! :rotfl:

EdInvestor

jancee wrote: »

'For people earning £4,680 or more a year or getting credits for State Second Pension, it will start to build up at a flat rate of around £1.60 a week (both figures in 2008/2009 money) for each qualifying year.

Ah so, thought it was probably a misunderstanding. S2P will be pretty minimal for people with very small incomes and carers, but much higher for those with salaries from full time jobs.

youngpensioner_3

Wonder if someone could help me !!!!?????

I took redundancy in October 2007 from my job and now having reached the grand old age of 50 have decided to take a reduced company pension.I have accrued 28 years of NI contributions and (assume) I only need to make up a further 2 years of contributions to guarantee a full state pension at 65.HOWEVER my company pension scheme was one of those great final salary schemes with a clawback.I presume this means that I will never get a greater pension than I do now, as once I reach 65 my state pension will be clawed back thorough the company scheme. Therefore is it really worth paying voluntary contributions to boost my NI when it will only get taken off me at a later date ? :mad:

Thanks

jancee_2

youngpensioner wrote: »

Wonder if someone could help me !!!!?????

I took redundancy in October 2007 from my job and now having reached the grand old age of 50 have decided to take a reduced company pension.I have accrued 28 years of NI contributions and (assume) I only need to make up a further 2 years of contributions to guarantee a full state pension at 65.HOWEVER my company pension scheme was one of those great final salary schemes with a clawback.I presume this means that I will never get a greater pension than I do now, as once I reach 65 my state pension will be clawed back thorough the company scheme. Therefore is it really worth paying voluntary contributions to boost my NI when it will only get taken off me at a later date ? :mad:

Thanks

It depends. One of the experts will no doubt be along but as I understand it, when you take a pension early in this manner, it factors in your state pension entitlement kicking in when that starts, probably 65 in your case. So the question is whether the scheme payment will reduce by what you *actually* get from the state pension, or by what you will be entitled to [ie two years short of full pension].